Oil prices are uncertain. The latter started the week with losses, but rebounded on Tuesday as investors were cautious ahead of the Fed’s monetary policy decision. A barrel of North Sea Brent cr ude for May delivery was up 1.22% at $74.69, while a barrel of West Texas Intermediate (WTI) was up 1.43% at $68.61. This small lull is making risky assets like commodities more attractive.
Oil prices evolve in an uncertain context
Investors are buying oil and betting on higher prices despite their recent decline, as they expect demand, particularly from China, to pick up while supply growth remains lower. However, in the financial sector, “although an immediate crisis seems to have been averted, fears of another sell-off remain,” moderates Stephen Brennock, analyst at PVM Energy.
Concerns about the health of the financial sector eased as investors were reassured by the absence of further turmoil surrounding the takeover of Credit Suisse by its rival UBS. But in the financial sector, fears of another sell-off remain after the collapse of Silicon Valley Bank and New York Signature Bank, which focused on technology startups.
As we await the Fed’s next monetary decision
Oil investors’ attention is focused on the upcoming monetary decision of the U.S. Federal Reserve (Fed) after its meeting on Tuesday and Wednesday. “Further Fed rate hikes could bode ill for future oil demand and trigger the next wave of selling,” Brennock says. The Fed has to choose between continuing its fight against inflation by raising rates or leaving them unchanged so as not to fuel the banking crisis. Oil prices are therefore uncertain pending its decision.
Tighter monetary policy could also weigh on the world’s largest economy by increasing the cost of credit for households and businesses. This will increase the risk of a recession, and therefore a drop in demand for oil.
ANZ analysts remain optimistic, however, saying that investors are buying oil and betting on higher prices despite their recent decline as they expect demand, particularly from China, to pick up while supply growth remains lower.
All in all, the oil market saw a small lull on Tuesday, after a week of losses, thanks to the absence of new banking turmoil. Investors are cautious ahead of the Fed’s monetary policy decision, which could impact future oil demand. However, analysts remain optimistic with a recovery in demand, particularly from China.
